A dash for gas, via LNG terminals.
Electricity is the most compact and the fastest form of power in wide-spread global use. LNG has huge advantages in that when its liquefied it becomes far more compact and transportable. It burns more cleanly besides is an alternative to oil dependency, and yes the world has huge supplies of Gas.
Today as one example about 60 % of USA ‘s GDP come from industries and services that use electricity as their core (fuel) energy; back in 1950, that figure was only about 20%.
In the early 1980’s more then a few experts predicted that the march from one new technology to the next would end the regular increases in electricity demand. It was called that the future of electric demand is "as flat as the Kansas horizon". They were dead wrong. The flat –power prognosticators utterly failed to foresee (among other things) the rise of microprocessors, servers and not least the Internet. A Pentium IV microprocessor consumes about ten times more electricity then its first version the 4004. And I read somewhere that just Google’s computer servers alone, could power up a medium sized US city of over 500,000 people. Today "all that computing" eats up about 14% of US electricity, vs near 0% in 1980.
I read somewhere that there are over 1 billion telephone battery charges out there and this is growing at a double digit rate...similar with micro wave ovens and flat screen TV’, which do use ample power. And imagine what happens when millions of new hybrid cars come on stream with their big batteries used for prime or secondary power. However you slice or dice it, electricity is the future and its uses are growing -not by any means leveling off.
No need to dwell into this at length as there is lots of literature showing why electricity is the future beyond any doubt. Global electricity demand remains on the rise and in all developing countries’ remains a true growth industry. *
In Thailand annual electric demand increases by around 6.2 - 7% a year, or nearly double the Thai GDP of late. TRT for example (the power transformer company I like) told me EGAT expects total Thai electric demand will double in the next 12 years.
Much of the electricity produced in developed as well as major developing countries comes from coal, notably China and the US. Coal is actually a rather polluting way to produce watts -and its use in the near and distant future to generate volt-power will be reduced.
Dash for gas for regas terminals.
There is an LNG revolution in progress. There is and has been an aggressive buildup in worldwide LNG infrastructure. To be sure there is a real LNG boom in Asia, the Middle Eas, EU and Africa and recently Australia. The LNG tanker fleet for example is set to double in size during the 6 year period -up to year 2012. China has put on a huge push to grow supply chains fueld by nuclear materials and natural gas. See "A Thousand Barrels A Second" by Pter Tertzakian. (2007)
Today in the US for example, 90% of new electricity producing stations comes from natural gas. It is expected that by year 2025 gas, not oil or coal, will be the world’ dominant cleaner interim energy source. Entire governments are throwing hundreds of billions of US$ into a sprawling gas and LNG infrastructure that will change the energy world completely. Gas is now the abundant fuel even if most of it is in remote or less than hospitable areas. LNG terminals are hugely expensive to build but offer very significant advantages. Gas also contains less carbon and more hydrogen than either oil or coal does, so not only does it emit less pollution and climate-altering CO2, but it also easily refined into pure hydrogen to power fuel cells and other energy technologies of the future. For these reasons, gas I widely touted as a "bridge" fuel.
Bridge fuel is a key important concept at this time of our history, as gas can simultaneously power much of our current energy economy and drive the transition to a more ideal system in the future.
Gas is far more expensive to handle and transport than oil is. Gas facilities cost billions and take years to pay-off; they pose massive financial risk for the energy companies undertaking them. A single LNG operation can cost a company 4-6 bill US$. Yet what is driving the move to gas is mainly that oil is obviously no longer the sure bet it used to be. The big players in the energy business are moving into gas because in the not too distant future it may the only way some of them can make any money.
Gas burns far cleaner then coal or oil does, especially in the new ultra efficient combined-cycle gas turbine generators and a new gas-fired power plant costs half as much to build as does a new coal fired power plant. It so has a much shorter payoff period.
"One dollar invested today in gas-fired generation capacity produces 3-4 times the amount of electricity as the same dollar invested in coal-fired generation capacity." John Bowne CEO of BP speaking to a reporter in year 2004 already.
This versatility and lesser pollution option explain why gas-fired power (to produce electricity) has been the trend in the EU/Asia and in developing countries around the world….gas is rapidly becoming the number-one fuel for producing electricity. But first you need to have supply and so LNG terminals are all the rage.
The conclusion here is that there is a shifting from a primary focus on oil and coal to produce more electricity to a more gas centric model….that is as if one can’t just rely on oil to achieve economic growth -not to mention that oil is far more polluting. So the next major energy play has to be gas.
Burning gas produces about 50% less carbon dioxide then coal and about 33% less then oil, for the same energy production. Its been estimated that even if all current coal fired power plants are replaced with gas powered ones we would cut global carbon emission by "only" 30%. In other words moving to a gas fired economy will not solve our climate problems but it would buy the world time. (The End of Oil, by Paul Roberts (2004).) LNG is so an interim energy source solution, whose time has come.
Gas is already the fuel of choice for many bus and taxi fleets around the world. Gas can also be converted into various liquid fuels, such as diesel and even synthetic gasoline, a capacity which could potentially end oil’s stranglehold on transportation.
No question the Asian industrialized economies of especially Japan and Korea and of course China are increasingly reliant on gas imports. And Australia with its vast gas reserves is gearing up in a big way to supply this region! Incidentally, the US is a long way off on LNG terminals, due to its obsession rightly or wrongly so, with terrorism and the "not in my back yard" attitude. (I read there is even a US HomeSecurity law there prohibiting construction of LNG terminals in the US).
Yet, LNG agreements are worth tens of billions of $ and lock countries and companies in for decades; the race for gas has touched off rivalries not only between companies, but between governments as well. In year 2001 already, China announced that it would accept bids to supply LNG to Hong Kong and surrounding Guangdong Province for 3 decades. The prospect of such mammoth deals has touched off an intensive bidding war between Australia and Indonesia, drawing attention around the world. Some analyst say Beijing has negotiated brilliantly, playing the Australian oil companies against their industry rivals.
LNG so marks a turning point, not just for the gas industry but for the direction of the entire energy economy. As improvements in technology have made it possible to liquefy, transport, and re-gasify great volumes of gas in economical fashion, the gap between the world’s biggest gas reserves and the worlds biggest markets in theory looks bridgeable.
So this begs the investor portfolio manager question: "How can I make money in LNG, what is the LNG pure play in our business". I think we here know the answer for us its STPI (13), a company I just visited -and here reviewed last.
See: http://www.stpi.co.th/
* See for example "The bottomless Well" By Peter Huber & Mark P. Mills (2005).
· Just below are some comments on STPI’s dividend prospects and an answer to a member on PRIN. (a property stock I like, as mentioned).
· Also see some further comments below on Woodside Petroleum in Australial and how this is progressing. STPI just about completed a huge project for Woodside and so now has a strong foothold in what it does for LNG terminals there. (Trains, see my just previous report on STPI).
Thaistocks.com Member-Talk (STPI and PRIN):
“STPI - they have some whispers going on (local websites ) to the final dividend payout from them as last year they paid out 2.4 baht which works out to around 60% of profits and this year the profits have been stronger, so current expectations are for a total of 3.3 or a additional 2.3 baht by april of this year as they have paid 1 baht as interim last year. can that really be possible as that would work out to around 17% , any views appreciated”.
My answer. I don’t’ think so. The company has a stated dividend policy of “not less then 30% of net profits” and so if they earn 5 Baht for ’09 as I estimate, the total dividend should be 1.50 to say 2, or so another 0.50 to 1.00 Baht. But I have not asked them this question as its up to the board of directors. I note that a few years ago Australia did not show up much on LNG global maps vs. now it’s a big player and the AU government there pushing it in a big way. PLUTO projects which are STPI’s involvement do not seem affected by the first part discussion?
If the company paid a 1 Baht final dividend it would be over 7.7 % yield on the current price of 13 and would signal the company is very confident to get more large projects there or elsewhere. But then again STPI is Thai conservative, so not sure if this will happen. I prefer to be in the middle and think of 0.75 dividend, or so a total of 1.75 Baht per share, for year 2009.
Geo-Tho, Member talk:
"The simple answer on Woodside, they have a lot of gas and have a high probability of finding more. I can’t see that the last years production tells us much in the big picture.
Re: the sunrise project in the Timor Sea north of Australia. (See further below).
"This is surely a dicey project, definitely not counted in what I put on the forum. It involves 2 governments with different ideas on where to build the processing plant. The E Timorese want processing in E Timor, the Australian government is more quietly spoken but prefer to pipe to Darwin -while the Joint Ventures are more outspoken and want processing in Darwin or via a floating facility. The gas field is closer to E Timor but there is a deep trench between the Sunrise site and E Timor, look at the map here: http://laohamutuk.org/Oil/LNG/chap1.htm
"If you read more of the article in the link (which is written from an E Timorese perspective) there is benefit for E Timor in delay. I read this week that E Timor has asked the Malaysian company Petronas to consider developing the field. For the last few years this project has been going nowhere. At least it will not be producing gas in competition to other projects. Final word: “Greater Sunrise must be approved by both Timor and Australia, according to a 2007 treaty between the neighbouring states. The deal gives the parties until 2013 to agree upon a joint development plan.”
"Regarding the Pluto follow-on projects Woodside is currently undertaking many exploration wells to define reserves for the 2nd and 3rd LNG trains but note this.
An analyst wrote on reserves:
"While drilling in that hostile environment is not cheap, Woodside has an excellent track record in finding gas. Since 2003 they have had a drilling success rate of 33-50 per cent. And in 2010 Woodside is commencing an aggressive 20-well program to firm up further reserves to justify its Pluto expansion plans. The investment point is that there is a lot of gas up there, and Woodside has been good at finding it. In that context, I think concerns that Woodside won’t find more gas are irrational.
"AND ON Pluto 2-5
To get full synergies from Pluto, WPL is planning to build four more Pluto LNG trains. Highlighting the synergies, the second train should only cost $7bn, or 37.5% less than P1. This is because P1 is over-engineered to allow for additional trains to be added later. For example, the ground has already been levelled, the pipes laid and WPL has stated that additional LNG storage tanks will not be required. Thus the capex synergy alone from building additional trains is quite high.
"Surely Woodside would not have over engineered Pluto 1 if they didn’t have very high expectations of proceeding.
"Regarding the Browse exploration field it is clear that Woodside, the State and Federal Australian Governments and the Kimberley Aboriginal Lands Council want this project to proceed and for processing to take place at a “local” Greenfield site. Some of the joint venture partners have disagreements with Woodside over whether to pipe the gas to other sites for liquefaction and over the pace of development. It would be difficult to overcome the forces pushing for development.
"So I still come back to what I said in the forum: The LNG trains required are; 2 pluto projects, 3 for Gorgon (locked in) and there is a high likelihood of Browse proceeding with x many trains.
"As for Gorgon may not be so bright for STPI. From the Tender awards site....
“Downstream Procurement LNG Plant “.....The Downstream component includes the LNG facility to be located on Barrow Island. The downstream contract was awarded to the Kellogg Joint Venture – Gorgon, which comprises KBR, JGC Corporation of Japan, and Australian-based partners Clough Projects Australia Pty Ltd and Hatch Associates Pty Ltd.
"Because I have no real knowledge of these companies I don’t know if they would subcontract or build the train themselves. Regardless these are companies who are unlikely to bid for Pluto projects. I have seen talk about cost overruns for Pluto but this has been of the order of 10% and many LNG projects in the past have fared worse. At least it is on time, a big plus for STPI too. "
SAM –Member talk
PRIN - "a few years back they wanted to issue warrants (approval granted on 22/02/08 ) which was for every 3 common shares to get on free warrants , convertible at 4 baht with a 1 - 1 ratio, but due to the fallout they did not issue , during your meeting with them was anything informed on this to you and is that a possibility of happening this year , as this could now create some investor value in their share prices. Any views welcomed."
My answer. Sorry nothing was mentioned about warrants. PRIN has a very low debt ratio and are in the top 10 listed property developers so have no problems getting loans, in fact the bank is more then happy to lend. So this makes me think warrants are not on the priority list, other then getting the share price exited in the shorter term, which they may not view as significant? Instead I am thinking the company is considering stock- dividends in addition to the cash dividend.
Best Regards,
Paul A. Renaud.
Below is more information on LNG in Australia if you want to dwell into this, as our perception here is that STPI will likely benefit in a big way as this country further develops its LNG terminals. (This is what member Geo-Tho referred to above.
On Jan. 22 ’10 (As Bloomberg reported) -- Woodside petroleum ltd., Australia’s second-largest oil and gas producer, expects to make a decision by the end of March on how it intends to develop the sunrise project in the Timor sea north of Australia.
Woodside will file a proposal with regulators after choosing the development concept, it said in a fourth-quarter production report today. The Perth-based company said the selection process is nearing completion.
Woodside and its partners, including Conocophillips and Royal Dutch Shell plc, are deciding whether to process the gas on a floating plant or pipe it to Darwin. The east Timor government this month repeated its objections to any development plan that doesn’t include a processing plant on its soil. “The quickest way for them to resolve it is to go to East Timor, but there are significant technical issues associated with that,” John Jirjee, an analyst at deutsche bank in Melbourne, said today. “I’m not sure how they are going to resolve it that quickly. We’re cautious on Woodside, in that their development projects have the potential for delays. Sunrise is one of them.”
Woodside fell 3.3 percent to a$44.37 in Sydney trading, compared with a 1.6 percent drop in the benchmark s&p/asx 200 index. the stock has gained 2 percent in the past six months, lagging behind the benchmark index’s 17 percent advance. In dispute
Australia, East Timor and the sunrise partners “are required to develop the reservoir to the best commercial advantage,” Woodside spokesman Roger Martin said in an e-mail today, reiterating the company’s position. Woodside will cooperate with East Timor and Australia to “secure the timely approval” of a plan to develop the sunrise field, he said.
East Timor won’t approve the sunrise partners’ proposals because the best commercial option is in dispute, secretary of state Agio Pereira said in comments e-mailed to Bloomberg this month.
Woodside owns 33 percent of the venture and is the operator, while Conocophillips has a 30 percent stake. Shell has about 27 percent, and Osaka gas co. has 10 percent.
Australia and East Timor completed a treaty in 2007 for the administration of the field, which straddles a boundary between Australian waters and an area jointly managed by the two countries. They agreed to share royalties.
Pereira didn’t immediately reply to an e-mail seeking comment today.
Boost to profit fourth-quarter sales declined 23 percent from a year earlier on lower production, Woodside said today. Sales fell to a$1.26 billion ($1.14 billion) in the three months ended dec. 31, it said in the statement to the Australian stock exchange today. production declined 13 percent to 20.2 million barrels of oil equivalent from 23.1 million barrels, it said.
Full-year revenue dropped 27 percent to a$4.35 billion, while production fell 0.5 percent to 80.9 million barrels of oil equivalent. Woodside said last month it expected 2009 production of about 81 million barrels of oil equivalent.
Woodside expects a boost to its 2009 full-year profit of about a$530 million because of the positive impact of foreign exchange gains associated with the revaluation of US. dollar liabilities, it said today.
The Australian producer last year kicked off the country’s largest drilling campaign to find gas to support an expansion of its $13 billion Pluto project. Woodside aims to approve a second phase by late 2010. Woodside and partners in the $30 billion browse gas project off northwest Australia accepted a government deadline and agreed to decide by April how to develop the venture. Australia wants oil and gas resources to be commercially developed as quickly as possible, energy minister martin ferguson said.
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